So You Think You Can Drill: How do I know if my lithium stock is onto a winner?

  • Lithium juniors looking for new discoveries are set to take centre stage as charging mid-tiers head towards full value
  • With more juniors on the boards of the ASX expect to see drill results come back into focus
  • We spoke to an exploration expert on what to look out for when reading lithium assay numbers

Lithium is the word on every investors’ lips right now and for good reason.

Equities in the key battery metal have been on a tear as low supplies and rising EV demand has seen prices soar up to five times higher than the price factored in by car manufacturers.

“Right now, lithium prices are at least 3x past the pain point for electric vehicle makers,” Simon Moores, the head honcho of pricing agency Benchmark Minerals Intelligence, says.

It’s all prompted Elon Musk, the boss of iconic and now extremely profitable EV brand Tesla to call on more folk to get into the lithium mining business.

“Do you like minting money? Well, the lithium business is for you,” the new lord of Twitter told analysts on a recent quarterly call as his company posted a US$18.8 billion profit.

It’s commonly known that the emerging lithium mid-caps are getting pretty frothy.

A number of prominent explorers and developers pushed their way into the key ASX 300 index in S&P’s March quarter rebalance, and the hunt for value could now shift to the lower end of the market.

But big new lithium discoveries have also dried up after the wave seen in 2015-2017 when finds like Kathleen Valley, Mt Holland, Bald Hill and Pilgangoora captured the attention of investors.

With prices for spodumene topping US$5000/t recently — the equivalent according to Pilbara Minerals (ASX:PLS) boss Ken Brinsden of up to US$7000/oz gold — more juniors will inevitably move into the space.

So how do you know if the exploration results you’re reading are worth their weight in lithium?

 

Brine v hard rock

There are a couple of major styles of lithium deposit, used to produce chemicals that form the core ingredient in lithium-ion batteries.

Evaporite brine projects, mostly concentrated in the Lithium Triangle in Chile and Argentina, have historically been the largest producers of lithium carbonate. They involve the extraction of dissolved lithium salts from saline groundwater pumped to the surface from porous sand dominant layers and paleochannels and dried into a 1-2% lithium concentrate in solar evaporation ponds.

Brine projects are generally large in scale and low in grade, measured not in percentages but milligrams of lithium per litre of brine.

According to the US Geological Survey economic brines tend to measure between 200 to 4,000mg/L, but most significant operations tend to measure 400-600mg/L or above.

For instance, Allkem’s (ASX:AKE) Olaroz project in Argentina contains an estimated measured and indicated resource of 1,752 million cubic metres of brine at 690mg/L lithium, 5,730mg/L potassium and 1,050mg/L boron for 6.4Mt of lithium carbonate and 19.3Mt of potash (potassium chloride). Subsequent modelling estimated its lithium brine grade at 825mg/L.

Recently hard rock spodumene mines have taken the mantle as the largest source of lithium raw materials thanks to the speed with which they’ve been able to ramp up in response to fast-moving prices and market enthusiasm.

These are found in rock types called pegmatites, which have historically been significant sources of other industrial metals like tin and tantalum. Most of the world’s major pegmatites have generally been discovered, mapped at surface and explored for other minerals in the past.

“It’s not as though somebody is going to trip over another pegmatite, because they’ve all been explored historically for other things, they’ve been looked at, scraped over for tin, tantalite, now lithium of course, mapped for occurrences of gold, nearby nickel, you name it,” Pilbara Minerals managing director Ken Brinsden said in a recent talk.

“The idea that someone now finds another big one in WA I think is probably at the lower end of the probability spectrum.”

What lithium companies have done is sample these pegmatites for evidence of spodumene mineralisation. When they do, what should you be on the lookout for?

 

Brine lithium plays share prices today:

 

Is grade king?

The Greenbushes mine in WA’s South-West is an outlier. Not only is it the world’s most prolific single lithium producer, but it’s comfortably the highest grade with a resource at a whopping 2% Li2O (lithium oxide or lithia).

Its tailings even are so rich in lithium that at a grade of 1.3% the battery metal is found in higher concentrations than many primary mines.

That’s exceptional though, so don’t get your hopes up.

CSA Global’s principal battery metals consultant Michael Cronwright says grades of 1-1.5% tend to be the benchmark to watch for.

“You’ve got the anomalies like Greenbushes, which runs close to 2% Li2O, and even AVZ’s Manono is on the higher end of the spectrum,” he said.

“But generally you see a sweet spot between 1% and 1.5%. With lithium prices going so high you could probably push cutoff grades down a bit and actually go with a lower grade deposit if you’ve got suitable scale.”

Extremely high grade hits can be in the 1.5-1.7% range, but Cronwright is quick to point out that grade isn’t always king.

“High grade borehole intercepts can be more than 2% Li2O, but shouldn’t be considered representative of the overall deposit grade,” he said. “High grade intercepts make for good news, but within any mineral deposit there is a range of grades from low to extreme highs.

“Deposit grades usually average somewhere in between.”

Companies should also be able to identify and demonstrate their mineralogy from an early stage, not just put numbers on a press release.

“You need to understand your mineralogy, and its impacts on the processing down the line,” he said.

“Early on in a project, you often don’t really know what you’ve got. It’s important with a pegmatite project on those first few holes that you drill that you understand your mineralogy, and you build on that knowledge throughout the project.

“Otherwise, you end up with a big lithium number in the ground but no real handle on how you’re going to process it and how it translates economically.”

 

Hard rock lithium plays share prices today:

 

What mineral is it?

The most common mineral hard rock lithium miners extract the valuable material from is called spodumene, which also gives its name to the concentrate traded with chemical producers and battery makers. The benchmark standard for lithium pricing is a spodumene concentrate with 6% Li2O.

Spodumene is the key mineral in most of the large pegmatites being mined or developed in WA and around the world, including Pilbara’s Pilgangoora deposits, MinRes (ASX:MIN) and Albemarle’s Wodgina, Greenbushes, Wesfarmers (ASX:WES) and SQM’s Mount Holland and Liontown Resources’ (ASX:LTR) Kathleen Valley among others.

But there are other minerals in pegmatites from which lithium can be economically extracted. These include petalite, and lithium micas like lepidolite and zinnwaldite.

Cronwright says these sources of lithium can be lower in grade and more complex than spodumene to process.

“You get minerals like lepidolite, which is a purple lithium mica, and zinnwaldite, also a lithum mica,” he said.

“Those have in the past been mined for lithium, the Chinese converters will take it.

“The problem with it is your grade is often highly variable in terms of lithium. The contaminants in the mineral concentrates are also quite variable, which is a bit of a challenge to any converter. That’s why they like spodumene.”

Petalite is a silicate mineral related to spodumene which is valued for its use in technical applications like glass-making and ceramics.

Concentrates produced from petalite can be consistent but are generally lower in grade than spodumene concentrates.

Petalite is typically low in iron impurities, which tend to stain glass, making it a good product for the technical market. But it can be used by converters where petalite rich concentrates may be blended with spodumene due to its low level of contaminants.

“The glass and ceramic industries quite like it, but it can also be used in the lithium battery space as well, it’s just a lower grade concentrate,” Cronwright said. “So you’ll be shipping more tonnes for the same units of lithium.”

None of these are necessarily red flags for whether a project will be successful, but it helps to know what different mineral compositions could mean for recoveries and concentrate quality down the line. Cronwright says investors should be on the lookout for the mineral composition of the pegmatites, not just the raw lithium grades.

“You’ll often just see companies reporting lithium grades and there’s no real mention of what the minerals are and that’s actually something you need to get your head around quite early on in the project,” he said.

For instance, Cronwright says a lithium project may contain more than one lithium bearing mineral like spodumene and amblygonite, a lithium phosphate.

So the lithium reported will either not be all recoverable, or will be split into two concentrates with different revenues.

“When you’re looking at results, does the company have a good handle on the pegmatite mineralogy and have they done the work? How will this impact the economics?”

 

What should I be lookout out for?

So what should investors be wary of when reading lithium drilling results?

One important question is whether the intersection is the true width or an oblique intersection that will look a lot wider than it really is.

Cronwright says JORC guidelines require those details to be disclosed, so it is important to read press releases in their entirety, not just for their headline results.

Another is whether the company can demonstrate some continuity to the deposit and “join the dots” between intersections, or do grades and widths from one intercept to the next vary considerably?

Also, how well is the mineralogy understood? And is there any associated tin and/or tantalum mineralisation that may provide by-product credits?

(Clause 49 of the JORC Code 2012 states: “For minerals that are defined by a specification, the Mineral Resource or Ore Reserve estimation must be reported in terms of the mineral or minerals on which the project is to be based and must include the specification of those minerals.”)

Lithium is also a very specific area of exploration expertise. It’s important to know whether the technical team with the company has lithium experience or has engaged consultants with the relevant experience and knowledge.

 

Recovery run

But Cronwright stresses drill results themselves are not enough to tell how impressive a project really is.

A resource may be relatively high or moderate in grade but have significant deleterious elements. Fluorine for instance is a by-product of lepidolite processing that is corrosive to processing plants and not environmentally friendly.

Lepidolite concentrate grades can also be variable. That’s something chemical converters want to avoid because they want consistent grades of lithium raw materials and quality control.

Understanding mineralogical texture and associations is also important. The lithium mineralogy may be very fine-grained or intergrown with quartz, which will impact processing and recoveries.

On the other hand there could be siginificant credits from by-products like tin and tantalum, as are found in mines like Greenbushes, Wodgina, Manono and Uis (a tin mine in Namibia where its owner Afritin is now exploring for lithium). Tin in particular is trading around all time highs at the moment.

“These tin-tantalum credits that can be quite lucrative,” Cronwright says.

“The tin price is at all time highs, tantalum is considered a critical metal by a lot of countries for the semiconductor and electronics industry.

“So these are other things that you need to consider – what are potential by-products that can add value to the project?

“Even things that are often overlooked and thrown into the dumps like feldspar and mica (like muscovite) and quartz. There are often industrial applications for these minerals like fillers, insulators, and feldspar is used in ceramics as well.”

Those may enable deposits to be economic despite lower lithium grades.

 

What about unconventional deposits?

With the growth of the EV sector, geologists are looking for lithium from more sources to increase supply of the raw material.

Some that have been proposed include clay-based lithium mining and geothermal brines, which would tap rich but low-grade lithium salts within deep wells of geothermal fluids typically used for heating and energy.

There are some outliers, like Rio Tinto’s (ASX:RIO) Jadar deposit, which may never get built due to community opposition in Serbia. That is a planned underground mine with a mineral seen in few other places called jadarite that bears similarities to clay-based deposits (and, curiously, to the fictional kryptonite, Superman’s one weakness).

According to Rio, Jadar contains 85.4Mt of indicated resources at 1.76% Li2O and 16.1% B2O3 (boron) with an additional 58.1Mt of inferred resources at 1.87% Li2O and 12.0% B2O3.

“You’ve got Jadar, in terms of unconventional lithium deposits, which is probably a bit like a Greenbushes is for pegmatites in terms of big and high grade,” Cronwright said.

“It’s incredibly high grade, incredibly big. Generally your clay projects are sitting well under 1%, but they’ve got usually quite a bit of scale and sometimes boron credits as well.”

 

Assessing clays

Cronwright said it remained difficult to get a gauge on what constituted a good grade for drill results in less conventional deposits like clays and geothermal brines until a project is developed and operates on a commercial scale.

In clays you’d expect to see anything from 800ppm to 2600ppm Li as a resource grade with intercepts of up to ~0.5% Li2O.

“I think the clay projects are a space where a lot are at feasibility stage, but really what we’re wanting to see is someone start producing from these clays, seeing how their ability to produce a lithium carbonate translates into the real world,” he said.

“I think on a clay project, and I speak under correction, if you don’t have the scale it may not necessarily be something that you’d want to invest in.

“It’s also understanding how big the basin is companies are prospecting in. You might be drilling in part of a larger basin which presents potential into adjacent properties.

“Lithium clay deposits are restricted to volcano-sedimentary basins and you’ll often see companies pegging claims adjacent to existing projects on the assumption the geology is contiguous with neighbours which is often a fair assumption.”

The most prominent proponent of sedimentary style lithium on the ASX is probably Ioneer (ASX:INR), which owns the Rhyolite Ridge project in Nevada.

It plans to extract lithium and boron at the “geologically unique” Rhyolite Ridge from searlesite and says it is the only known lithium deposit associated with the boron rich mineral.

Based on a DFS completed in 2020, Ioneer claims the development will have the lowest all in sustaining costs globally for lithium hydroxide production of just US$2510/t from a large resource of 146.5 million metric tonnes of lithium and boron and ore reserve of 60.2Mt at 1800ppm lithium (equivalent to 1% lithium carbonate according to Ioneer) and 15,400ppm boron (8.8% boric acid).

The highest grade interval at Rhyolite Ridge was 18.5m at 2364ppm lithium and 13,044ppm boron.

 

Unconventional lithium plays share prices today:

 

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